Deck 16: Breakeven Analysis

Question 1

Breakeven analysis can be used when planning ____.

A) renovations
B) expansions
C) financial resources
D) new product development

Answer 1

C

Question 2

Kettle of Fish Hatcheries provides a stocked pond for fishing enthusiasts. They have fixed costs of $525,000, they charge $50 per person for pond access, and the variable costs of stocking the pond average about $15 per person. How many people need to fish the pond annually to break even?

A) 45,000
B) 15,000
C) 32,000
D) 10,000

Answer 2

B

Question 3

The uses of breakeven analysis includes all except which of the following?

A) Forecasting the profitability of the firm
B) Forecasting the impact of certain economic conditions on the firm's profitability
C) Analyzing the impact of substituting fixed costs for variable costs in production
D) Analyzing the profit impact of a firm's restructuring efforts

Answer 3

B

Question 4

The breakeven point occurs where total revenues intersect with ____.

A) market returns
B) the risk-free rate
C) total costs
D) total interest and taxes

Question 5

The Foggy Futures Weather Network offers an annual almanac for sale each year with information about predicted weather patterns, severe storm safety tips and a tracking chart. The finished product sells for $35, with a variable cost per unit of $21. The company has operating costs of $1,050,000. What is the probability of the firm having operating losses if the firm expects to sell 80,000 almanacs, with a standard deviation of 4,000 units? (A normal distribution table, for example, Table V from the text, must accompany this problem.)

A) 10.56%
B) 11.12%
C) 14.92%
D) 13.57%

Question 6

How can a firm have more than one breakeven output point?

Question 7

An example of a noncash outlay is ____.

A) property
B) marketing costs
C) advertising
D) depreciation

Question 8

What is the breakeven point for Rough and Tough Clothiers, maker of heavy-duty dungarees? It has the following costs: $$\begin{array} { l l } \text { Raw materials: } & \$ 15 \text { per pair } \\\text { Labor costs: } & \$ 8 \text { per pair } \\\text { Commissions: } & \$ 2 \text { per pair } \\\text { Utilities: } & \$ 50,000 \\\text { Rent: } & \$ 96,000 \\\text { Taxes: } & \$ 30,000 \\\text { Salaries: } & \$ 150,000\end{array}$$ The price of the dungarees is $55 per pair.

A) 13,040
B) 10,867
C) 25,000
D) 17,650

Question 9

Bouncy Bungee Rubber Band Company has fixed costs of $2,760,000 per year, it sells its rubber bands for $3.75 per pack, and the variable cost of these packs is $0.75. They estimate they will sell 1,000,000 packs this year, with a standard deviation of 40,000 units. Find the probability of the company incurring a loss. (A normal distribution table, for example, Table V from the text, must accompany this problem.)

A) 3.22%
B) 6.71%
C) 5.48%
D) 2.87%

Question 10

The Foggy Futures Weather Network offers an annual almanac for sale each year with information about predicted weather patterns, severe storm safety tips, and a tracking chart. The finished product sells for $35, with a variable cost per unit of $21. The company has operating costs of $1,050,000. The company has operating costs of $1,050,000. What is the firm's breakeven point in dollars?

A) $1,750,000
B) $4,670,000
C) $2,625,000
D) $3,875,566

Question 11

The Fanny Nanny Weight Monitors Corporation offers an annual diet plans for sale each year with information about nutrition, diet tips, and food substitutes. The finished product sells for $60, with a variable cost per unit of $27. The company has fixed operating costs of $1,250,000. What is its breakeven point?

A) 22,187
B) 37,879
C) 56,124
D) 48,961

Question 12

In a graphic breakeven analysis, the point where total revenue is less than total cost indicates the firm has ____.

A) net operating capital
B) cash flow from investing
C) a negative EBIT
D) a positive return on capital

Question 13

Another name for breakeven analysis is ____.

A) cost-volume-profit analysis
B) graphic analysis
C) EBIT-EPS analysis
D) degree of operating leverage

Question 14

The contribution margin per unit is the difference between the ____.

A) selling price per unit and fixed costs
B) fixed costs and the variable costs
C) selling price per unit and the variable cost per unit
D) variable costs and the number of units sold

Question 15

The Foggy Futures Weather Network offers an annual almanac for sale each year with information about predicted weather patterns, severe storm safety tips, and a tracking chart. The finished product sells for $35, with a variable cost per unit of $21. The company has operating costs of $1,050,000. What is the firm's breakeven point in units?

A) 75,000
B) 50,000
C) 80,000
D) 65,000

Question 16

The difference between the selling price per unit and the variable cost per unit is the contribution ____.

A) to the bottom line
B) to revenue
C) margin
D) to EBIT

Question 17

The Foggy Futures Weather Network offers an annual almanac for sale each year with information about predicted weather patterns, severe storm safety tips, and a tracking chart. The finished product sells for $35, with a variable cost per unit of $21. The company has operating costs of $1,050,000. Using 100,000 units as a base, what is the degree of operating leverage?

A) 6.2
B) 5.7
C) 7.9
D) 4.0

Question 18

What is the breakeven point, in dollars, for Zippy Dippy Swimwear, maker of bathing suits and accessories? It has the following costs: $\begin{array}{ll}\text { Raw materials: } & \$ 25 \text { per bathing suit } \\& \$ 8 \text { per towel } \\& \$ 16 \text { per beach umbrella } \\& \$ 37 \text { per swimsuit cover-up }\\\text { Labor costs: } & \$ 18 \text { average per suit } \\& \$ 10 \text { per umbrella } \\& \$ 3 \text { per towel } \\& \$ 20 \text { per cover-up }\\\text { Commissions: } & \$ 12 \text { per item } \\\text { Utilities: } & \$ 150,000 \\\text { Rent: } & \$ 196,000 \\\text { Taxes: } & \$ 230,000 \\\text { Salaries: } & \$ 550,000\end{array}$ The price of each suit is $85. The price of each towel is $25.
The price of each umbrella is $40.
The price of each cover-up is $81.

A) $3,172,023
B) $4,947,196
C) $7,887,259
D) $6,425,583

Question 19

Breakeven analysis is normally performed for a planning period of ____.

A) one month
B) one year or less
C) five years
D) ten years

Question 20

Breakeven analysis can be used to assess ____ risk.

A) financial
B) operating
C) sales
D) volume

Question 21

Explain the composition of operating costs and why they can cause an inaccurate breakeven analysis.